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German deputy leader visits China as EU tariff tensions simmer

By Thomson Reuters Jun 18, 2024 | 9:28 AM

By Maria Martinez

BERLIN (Reuters) – Germany’s Economy Minister Robert Habeck travels to China this week with a delicate mission to deepen economic ties while helping manage the fallout of the EU’s threat to impose steep tariffs on Chinese cars that has raised fears of a trade war.

Habeck, who has personally spoken out against punitive tariffs as a last resort, takes with him a low-key business delegation and is expected to address trade relations while also pressing China on hot-button issues such as Taiwan and Russia.

Germany is seeking to broaden access for its companies to the vast Chinese market, while also trying to “derisk” its economy from being too reliant on any one country.

Habeck’s trip comes a week after the European Commission proposed tariffs of up to 38.1% on electric vehicle imports from China, marking a new low point in economic relations and prompting China to threaten retaliation against EU pork exports.

As Europe’s largest economy, Germany’s voice carries particular weight and its leading car manufacturers have vociferously opposed the EU tariffs. It has urged dialogue while also expecting China to compromise.

“Habeck should act as a mediator between the EU and China here and resolve a trade dispute early in the interests of German small and medium enterprises,” said Patrick Schoenowski, from the German Association for SMEs, DMB.

“The aim of the negotiations with China should be to resolve the root causes of the punitive tariffs.”

Habeck’s ministry has outlined the goals for the trip as explaining Germany’s trade and economic policy to China, including its need for energy diversification. But the car tariff issue is unavoidable.

“Of course, the Minister will have no choice but to address this issue, that is quite clear,” a ministry spokesperson said.

“But he is not conducting talks on behalf of the EU Commission, that is the task of the Commission.”

TARGETING EXCESSIVE SUBSIDIES

The European Commission said it would impose extra duties on Chinese electric cars from July to combat excessive subsidies.

The state-backed China Daily newspaper expressed hope that “proper solutions” could be found during Habeck’s talks with Chinese officials before the tariffs come into force.

German Chancellor Olaf Scholz, who visited China in April, has not criticised the EU tariffs directly but warned about the dangers of protectionism.

Juergen Matthes, from the German economic institute IW, said the framing of the tariff issue will be crucial.

“If the EU has sufficient evidence of unfair subsidies, imposing extra duties is not protectionism, but rather an attempt to establish a level playing field,” he told Reuters.

The German industry association BDI expects Habeck to communicate Germany’s stated aim of “de-risking” from China rather than “decoupling” and turning its back on business there.

“He must cleverly explain where the limits are, why we perceive China as a systemic competitor and demand the reduction of market distortions,” a BDI source said.

Habeck, who comes from the Greens party in Scholz’s three-way coalition government, will also raise climate protection as well as long-standing trade bugbears such as fair competition for German firms and transparent public tenders.

“We expect that the Chinese government will now be more open to change, because they really must not lose Europe,” said Maximilian Butek, executive director and board member of the German Chamber of Commerce in East China.

“On the other hand, they are so competitive in so many areas that they don’t really need these protective mechanisms anymore.”

While Scholz took the CEOs of major German firms on his trip in April, Habeck’s delegation focuses “deliberately on SMEs in order to give this backbone of the German economy appropriate recognition abroad during such trips,” a ministry source said.

SMEs often do not have their own channels to the Chinese government, the source added.

Habeck, who visits Beijing, Shanghai and Hangzhou, will also attend the German-Chinese Climate and Transformation Dialogue.

Before travelling to China, he will go to South Korea, one of the countries where German companies are seeking to invest as part of a de-risking strategy. In Seoul he will meet Prime Minister Han Duck-soo and his counterpart, Trade Minister Ahn Dukgeun.

(Reporting by Maria Martinez; editing by Matthias Williams and Sharon Singleton)